Friggatriskaidekaphobia* aside, Friday August 13 2010 confirmed good news from the economy of the European Union, which reported second-quarter growth of one per cent, buoyed mainly by a strong performance by Germany.

For Bulgaria, however, the big question remains whether economic growth in the 27-member bloc will prove strong and sustainable enough to float the economy of the EU’s least wealthy member off the sandbar where it has remained grounded by the crisis.

According to figures announced on August 13 by the EU’s statistics office, Eurostat, the 16-member euro zone’s economy grew by one per cent in the second quarter of 2010, a significant improvement from the Q1 figure of 0.2 per cent.

According to Eurostat, compared with the second quarter of 2009, seasonally adjusted GDP increased by 1.7 per cent in both the euro area and the EU27 in the second quarter of 2010, after increases of 0.6 per cent and 0.5 per cent, respectively, in the previous quarter.

During the second quarter of 2010, US GDP increased by 0.6 per cent compared with the previous quarter, after increasing by 0.9 per cent in the first quarter of 2010. US GDP rose by 3.2 per cent compared with the same quarter of the previous year (+2.4 per cent in the previous quarter).

In Germany, growth was 2.2 per cent, higher than at any time since the fall of the Berlin Wall. 

Howard Wheeldon, Senior Strategist at BGC Partners in London, said in an interview with the Voice of America that Germany has led the way for European growth.   

"Germany is the powerhouse, the engine of the EU, it's the engine of the euro zone," he said. "Ultimately though, I do foresee that if the German strength continues at this pace it is going to cause additional problems for the euro zone." 

Wheeldon said that it would be better for Europe if the economies grew at an equal rate. 

"If Germany is exporting somebody else is not," Wheeldon said. "That somebody that is not are the smaller countries within the euro zone economy. They are not benefitting in any way from the German strength. And of course if Germany is strong, then the euro gathers in strength - that makes it even worse for those countries that are struggling to make ends meet in the euro zone economy." 

On August 13, the US commerce department said that retail sales had risen in July for the first time in three months, largely due to high car sales. US retail sales are important because they highlight private consumption, which accounts for around 70 per cent of the US economy, VOA reported. 

But in China, economic growth appears to be slowing. Beijing said on August 11 that several government indicators had slowed slightly in July. This was a sign, according to analysts say, that the Chinese economy is beginning to cool after it grew rapidly in H1 2010. 

 

"There's been much talk about Chinese growth momentum slowing. I would perhaps prefer to look at it in another way and say that what's happening in China is that Chinese growth is settling and that's probably a more beneficial point and one that economists tend to ignore," Wheeldon said.

The German economy is the largest in Europe. In 2009 it shrank by 4.9 per cent - its worst performance since World War 2.

 

Other figures

 

Separately, Eurostat said that euro zone annual inflation was 1.7 per cent in July 2010, up from 1.4 per cent in June. A year earlier the rate was -0.6 per cent. Monthly inflation was -0.3 per cent in July 2010.

EU annual inflation was 2.1 per cent in July 2010, up from 1.9 per cent in June. A year earlier, the rate was 0.2 per cent. Monthly inflation was -0.2 per cent in July 2010.

In July 2010, the lowest annual rates were observed in Ireland (-1.2 per cent), Latvia (-0.7 per cent) and Slovakia (one per cent), and the highest in Romania (7.1 per cent), Greece (5.5 per cent) and Hungary (3.6 per cent). Compared with June 2010, annual inflation rose in 19 EU member states, remained stable in one and fell in six.

In Bulgaria, according to a report by daily Dnevnik,   consumer prices had resumed increasing after a short lull, with 0.4 per cent monthly inflation recorded for July.

On an annual basis, this makes 2.4 per cent compared with 1.4 per cent in June, according to National Statistical Institute (NSI) figures published on August 12.

The acceleration is driven chiefly by increases in fuel, gas and electricity prices. The State Energy and Water Regulatory Commission (SEWRC) approved an almost 25 per cent increase in natural gas tariffs from July 1, rejecting calls by businesses and trade unions that such a price shock would devastate both industry and households.

Power prices were increased by about 1.8 per cent from the same date.

According to economist Petar Chobanov, quoted by Dnevnik, the Bulgarian inflation figures "came as no surprise given the higher administrative prices. What worries me is that if inflation continues to speed up, it might affect consumption, which is tight anyway".

July saw increases in the prices in Bulgaria of all items but for food and beverages, which remained unchanged and which account for 35 per cent of household income in Bulgaria. The sharpest month-on-month increase was recorded in entertainment and holidays, which increased by 4.7 per cent as well as utilities, which rose by 1.2 per cent.

On an annual basis, the most drastic increases were in prices of alcohol and cigarettes, which climbed by 26.7 per cent. However, they represent just five per cent of the consumer basket.

Bulgaria ended June with a 0.9 per cent deflation on a monthly basis, which slowed the annual rise in prices. Inflation quickened on a yearly basis in March, April and May, reaching 1.9 per cent.

 

It’s the economy, again

 

The second-quarter figures for Bulgaria showed that recovery remained in the balance, because of flagging domestic demand and an expected slowdown in growth in the EU, its key export market, according to analysts polled by Dnevnik after the August 13 announcement of the GDP numbers of EU countries.

Because of resuscitated exports and industrial output, the contraction of the Bulgarian economy in the second quarter slackened to its lowest in five consecutive quarters. On an annual basis, the decline was 1.5 per cent, slowing from 3.6 per cent year-on-year in the first quarter, according to flash estimates by the NSI on August 13.

However, even in the best-case scenario, the positive impact of EU growth will not be felt in Bulgaria before six months at the earliest.

"Consumption will remain depressed until the credit market eases off, which is not going to happen. Exports will not rise at a rapid rate in the second half of the year," according to Tsvetoslav Tsachev, head of research at Sofia-based Elana Trading. The company predicts that in the best-case scenario, Bulgaria will end the year with a one per cent economic contraction.

On August 13, economic policy think tank the Institute for Market Economics (IME) predicted a 0.5 per cent increase for the full year.

Private consumption and public spending dwindled by 7.6 per cent and 19.9 per cent year-on-year in the second quarter, according to the NSI data.

Very tentative optimism could be seen in the industrial sector -- that is, where the state meddles the least -- but Bulgaria derives the bulk of its GDP (over 62%) from services, where the deterioration continues, Bozhidar Danev, chairman of the Bulgarian Industrial Association (BIA), told Bulgarian National Radio.

 

Optimism and other emotions

 

Finance Minister Simeon Dyankov found reason to be optimistic on August 13, saying that initial statistics showed that Bulgaria’s exports in July were 44 per cent higher than at the same time in 2009. These early statistics would mean that Bulgaria’s exports had been on the increase for 10 months.

On August 16, it emerged that for the fifth straight month, July had seen a decrease in unemployment in Bulgaria. Unemployment was 9.23 per cent, a decrease of 0.03 percentage points from June, Bulgarian news agency BTA said.

The same day, it emerged that Bulgaria's balance of payments on current account was in 117 million euro surplus for June 2010, compared to a deficit of 3.8 million euro for May and of more than 280 million euro for June 2009, according to figures released by central Bulgarian National Bank (BNB).

Also on August 16, BNB figures showed that foreign investors were returning to Bulgaria, but the capital they bring is far below the value a year ago, when investments were already contracting and the country's GDP declined steeply.

According to BNB preliminary data, foreign direct investment in Bulgaria was 358.5 million euro (one per cent of GDP) for January-June 2010, down 78 per cent from the 1616.7 million euro (4.8 per cent of GDP) attracted in January-June 2009.

Another way of looking at the situation was the take offered by daily Novinar, which looked at the August 13 figures and concluded that Bulgaria ranked third in Europe in terms of a decrease in GDP. Against Bulgaria’s economic shrinkage of 1.5 per cent on an annual basis in Q2 2010, only Latvia and Greece had done worse.

 

*The fear of Friday the 13^th.